SA tax revenue forecast drops as renewable energy import boom ends
|Published
The government has forecast lower tax revenue for the next two years, with one reason being the reduced VAT gained from the ending of the boom in alternative energy product imports that occurred through the period of loadshedding.
Despite this under performance in near-term revenue collections, however, the tax-to-GDP ratio was expected to remain resilient and tax collections were expected to remain buoyant, National Treasury said in the MTBPS.
"Overall, revenue growth will improve over the MTEF (Medium-Term Economic Framework), helping to narrow the budget deficit," said Nedbank Group's economic unit yesterday.
Treasury said revenue collections over the first half of 2024/25 were 5.2% higher than the same period last year, but the low economic growth environment and lower VAT receipts had crimped the tax collection and the government revenue forecast 2024/25 was expected to be R22.3 billion lower than what Treasury had estimated in its February Budget.
Over the next two years, the main budget revenue estimate had been lowered by R31.2bn.
"In the absence of faster (economic) growth and in the face of external risks, tax revenue will remain under pressure, forcing us to make difficult decisions on where to spend," Finance Minister Enoch Godongwana said yesterday.
National Treasury said slower renewable energy imports associated with the now stable electricity supply had weakened import growth, resulting in lower VAT collections, than what was forecast at the time of the 2024 Budget, when renewable energy imports were still high.
This, together with strong growth in VAT refund payments, meant that VAT collections were expected to fall short of the 2024 Budget Estimate.
There were also under-collections in fuel levy receipts as demand for fuel had fallen "sharply," said Treasury. The outlook was also revised lower due to an expected settlement of a large once-off diesel refund payment.
The SA Revenue Services (Sars) said a substantial amount of 1 333 million litres less fuel was used this year, which can be attributed to various factors such as the lower levels of loadshedding, and a shift towards alternative energy sources. The reduction in fuel consumption had directly impacted the Net Fuel Levy. This had contracted by 3.9% year-on-year, resulting in a shortfall of R7.2bn.
Factors likely to boost government revenues over the next two years were strong corporate tax collections, as companies had a better profitability outlook. In addition, export commodity prices were expected to moderately increase, following a contraction in 2023/24.
Godongwana said improved tax administration and collection would also be required to improve government revenues.
Sars said that to date, compliance revenue secured R110.1bn, reflecting a growth of R8.1bn (8%).
“Sars will continue to intensify its efforts to maintain visibility and reinforce compliance, with plans to invest further in compliance initiatives to close the tax gap by targeting various taxpayer segments.”
Sars Commissioner Edward Kieswetter said in a statement that "In pursuing the attainment of the 2024/25 tax revenue estimate of R1 840.8 billion, Sars will be unrelenting in its drive to engender voluntary compliance."
"We will continue to use sophisticated data science and artificial intelligence to maintain the balance between service to taxpayers/traders, whilst managing risks to the fiscus by detecting dishonest taxpayers," he said.
Lower revenue also means the government cannot accommodate all of the demands on the fiscus.
"Difficult trade-off’s, in all spheres of government, will have to be made. By sticking to our debt-reducing strategy and confronting these trade-off’s, we can create the necessary conditions for a fast-growing economy that facilitates employment," Godongwana said.
He forecast real GDP growth of only 1.1% in 2024, which was also lower than the estimate of 1.3% in February. Over the medium term, growth was forecast to average only 1.8%. Economists have said the growth in excess of 3% was required to make an appreciable dent in the high unemployment rate.
BUSINESS REPORT